Inflation climbs to six-month high

The inflation rate rose sharply in December to 5.7%, the highest rate in six months, mainly because of an increase in the price of food crops to 10.8%, according to the Uganda Bureau of Statistics. Headline inflation in November was 4.6%.

The increase in annual food crops inflation, which came in at 7.2% in the year ended November 2016, was mainly due to a rise in fruits inflation to 24.8% compared to 13.6% in the previous month.

Core inflation, which is closely watched by the central bank, also rose to 5.9% in December versus the 5.2% recorded for the year ended November 2016, its third consecutive increase. The statistics bureau attributes its rise to an increase in services inflation to 7.5% compared to 6.6% in November.

Despite the recent increases in core inflation, Bank of Uganda lowered its benchmark lending rate by 100 basis points earlier this month predicting that core inflation will remain around the 5% target over the next 12 months.

The rate cut, the fifth consecutive this year, was necessary to “keep the domestic economic growth momentum,” a statement released by the bank said. However, the statement said that inflation would increase in the short term due to a rise in the prices of food and fuel prices.

The government expects ongoing drought conditions in several parts of the country – which have pushed up food prices – to depress economic growth in the current financial year.

Energy, fuel and utilities prices also rose to -2.8% versus -4.1% the previous month, due to a -6.1% rise recorded for liquid fuels (-6.7% in November).

The average annual headline inflation for 2016 rose to 5.5% versus 5.4% in 2015, according to the statistics bureau. This was due to an average core inflation of 6.0% compared to 5.4% last year, an average EFU of 3.9% versus 3.5% in 2015. Average food crops inflation however fell to 3.1% compared to the 6.7% recorded last year.

The consumer price index, which measures the average change over time in the prices of a basket of consumer goods and services, and whose rate of change determines annual headline inflation, rose to 164.76 in December versus 162.78 in November. The core inflation index also rose to 160.93 in December from 158.94 in November; it registered a slight decline in November (it was at 158.48 in October).

The Arua geographical area registered the highest annual inflation of 8.5% versus 6.8% in November, with a 13.2% rise in food and non-alcoholic beverages contributing the most to the increase. Fort Portal registered the second highest inflation of 7.1% versus 6.4% in November, while Kampala High Income had the third highest rate of 7.0% versus 5.4% in November.

Monthly headline inflation rose 1.2% versus 0.7% the previous month. The main driver of the rise was a 1.2% increase in monthly core inflation compared to 0.3% the previous month. Additionally, the prices of food crops and relation items in the month rose by 1.0% versus 4.0% in November. Monthly energy, fuel, and utilities also rose 1.4%, compared to the -0.5% registered in August 2016.